Will These Rockets Rescue GM's Saturn?

New models will have European styling, leather, chrome -- and higher price tags

Last August, General Motors Corp. (GM ) Chairman G. Richard Wagoner Jr. and his new-car czar, Robert A. Lutz, went to their board of directors with a dicey pitch: They wanted to plow $3 billion into GM's long-suffering Saturn division. GM's directors were understandably concerned. Sales at the 15-year-old unit finished 2004 down 22%, thanks largely to a fiasco with the L-series family car, which bombed so badly that GM took it off the market. Having squandered much of the goodwill generated from its early days of dicker-free showrooms and folksy marketing, Saturn today is mired in red ink, losing as much as $1 billion a year. Many GM insiders think the division would be better left to go the way of Oldsmobile.

Faced with the huge costs of pulling an entire brand off the market -- and one that still has fairly strong buyer loyalty -- the board bought in for another pricey run at fixing Saturn. What sold it was a raft of concept cars -- among them, the racy Sky roadster and stylish Aura sedan -- that GM has been tinkering with for a couple of years and will show at the Detroit Auto Show next week. They also liked Lutz's risky bid to push the brand upscale with more expensive cars. The Sky, which goes on sale late this year, and the Aura, arriving in dealerships in '06, kick off a blitz of new Saturns that will culminate with new Ion and Vue models in '07 and a larger sport-utility vehicle for 2008.

These new vehicles promise to be a serious upgrade over previous Saturns. Much of the new money GM will spend -- an estimated $800 million -- will go toward converting Saturn's heralded Spring Hill (Tenn.) factory to build steel-body cars instead of today's plastic bodies. (The plastic expands on hot days, so panels must be spaced far apart, giving an appearance of poor construction.) The styling and interiors of the new vehicles will be heavily influenced by GM's European studios. The goal: sell enough cars at premium prices for the division to break even around 2008. "I'm so convinced that these cars will work," says Lutz.

Even critics say the new Saturns look better than any passenger car GM has built for the mass market in decades. But transforming Saturn from a brand known for cheap small cars into one that sells a wide range of fun and fashionable rides will be a challenge of planetary proportions. Surveys show that Saturn's image is among the worst in the market. Consumers see it as a cheap alternative to Honda (HMC ) and Volkswagen. The brand took a big hit from its aging models and the L-series debacle. And it didn't help that last summer all of the nearly 250,000 Vue SUVS had to be recalled to remedy a suspension problem. In early 2004, CNW Marketing Research in Bandon, Ore., surveyed consumers and ranked Saturn's image at 31st among 38 car brands -- down from 23rd in 2002.

That's why Lutz tapped some of his top designers for the makeover. While the first Saturns had a young look to match the image of a completely new brand, later models were monuments to conservatism. This time, Lutz has seven studios around the globe crafting Saturn's new look. The original concept for the Sky was created by Simon Cox, a Brit who runs GM's London studio and had a hand in Cadillac's edgy new look. Opel designers in Germany are giving the cars some European flair. Inside they boast rich red and black leather and chrome accents. Says Dave Rand, executive director of interior styling for GM's North American operations: "We want people to be surprised it's a Saturn."


They'll also be surprised at the price tag. All those improvements bumped up costs, of course. While GM isn't saying how much it will lift prices, the Sky is expected to sell for a shade more than the nearly $20,000 Pontiac Solstice roadster, which uses the same engine and frame. Compare that with under $14,000 for a base-level Ion. "They're nuts," says Art Spinella, president of CNW.

Indeed, GM will be hard-pressed to convince buyers that any Saturn is worth that much. When the company showed the forthcoming Saturns to consumers in internal clinics, they registered a 3.9 on GM's 4.0 scale of acceptance -- indicating a genuine hit. But then GM slapped a Saturn emblem on the hood, and the score plummeted to a weak 2.5. "The cars look good," says AutoPacific Inc. Vice-President James N. Hall, but he jokes that "a lot of embarrassed people will be driving Saturns."

Even so, Lutz and his team say Saturn has advantages that make it worth saving. General Manager Jill A. Ladjiak points to the unit's young, educated buyers, most of whom are women. And though Saturn has had at most three models to offer, half its customers come from non-GM brands. "We've had a lean product portfolio," Ladjiak says. "Some people are surprised the brand is still standing." Lutz vows that GM will be patient as it tries to fix things. But consumers are likely to be less forgiving. If the new cars fizzle, Saturn could still find itself following Oldsmobile into early retirement.

By David Welch in Detroit

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